Advice like “skate where the puck is going" may sound like billboard investing, but there's a lot of truth to it relating to retail stocks. That is, if you're willing to look below the headlines.
Retail sales are weak. And if you adjust the numbers for inflation, the numbers are negative. This may reflect the real state of the consumer. At the very least, it tracks with the consumer's perception of their personal finances.
So it's a bad time to invest in retail stocks, right? Well, maybe not. The reason is because it's back-to-school season. That won't be reflected in the results from retailers in this coming earnings season, but they'll be offering guidance.
Third-quarter earnings are also likely to correspond with an interest rate cut from the Federal Reserve. That means this is a good time for investors to consider buying retail stocks. This special presentation gives you seven companies to consider.
Quick Links
- Amazon.com
- Walmart
- Costco
- TJX Companies
- Target
- DICK’S Sporting Goods
- Dollar General
#1 - Amazon.com (NASDAQ:AMZN)
One of the more intriguing earnings reports for investors to consider will come from Amazon.com Inc. (NASDAQ: AMZN). There’s a sum-of-its-parts story developing around Amazon. In 2021, the focus was on the company’s e-commerce unit which thrived in a socially distant world.
But that masked the strength of Amazon Web Services (AWS). This makes Amazon a player in areas such as cloud computing, analytics, machine learning, and AI. It also made AMZN stock one of the Magnificent 7 stocks that thrived in 2023, even as the e-commerce side of the business saw slower growth.
But this is looking to be a time when both sides of the business begin to click at the same time. AMZN stock is up 20% in 2024, but it’s down about 5.5% in July. That's not a huge dip, but it may be the largest that investors can expect. If the company delivers a bullish print as is widely expected, analysts are currently forecasting a 20% increase in the stock price and that could move higher.
About Amazon.com
Amazon.com, Inc engages in the retail sale of consumer products, advertising, and subscriptions service through online and physical stores in North America and internationally. The company operates through three segments: North America, International, and Amazon Web Services (AWS). It also manufactures and sells electronic devices, including Kindle, Fire tablets, Fire TVs, Echo, Ring, Blink, and eero; and develops and produces media content.
Read More - Current Price
- $184.89
- Consensus Rating
- Buy
- Ratings Breakdown
- 41 Buy Ratings, 1 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $222.49 (20.3% Upside)
#2 - Walmart (NYSE:WMT)
With the exception of a small dip in April 2024 has been a great year to own shares of Walmart Inc. (NYSE: WMT). The year started with a 3-for-1 stock split, a move the company made to make its shares more accessible to its employees. That’s worked out well with WMT stock up 32% for the year.
In its most recent earnings presentation, Walmart noted that low-income consumers were pulling back on discretionary spending. However, during a season when these consumers will be looking for the best (i.e. the lowest) prices, it’s likely that Walmart will be in the consideration set.
The company reports earnings on August 15, but several analysts are bullish on the stock already. Piper Sandler initiated coverage with an Overweight rating and a price target of $81. That’s more than 15% above the $71 consensus target. And since Piper Sandler issued its rating, the Walmart analyst forecast on MarketBeat show four more analysts have raised their price target for WMT stock.
About Walmart
Walmart Inc engages in the operation of retail, wholesale, other units, and eCommerce worldwide. The company operates through three segments: Walmart U.S., Walmart International, and Sam's Club. It operates supercenters, supermarkets, hypermarkets, warehouse clubs, cash and carry stores, and discount stores under Walmart and Walmart Neighborhood Market brands; membership-only warehouse clubs; ecommerce websites, such as walmart.com.mx, walmart.ca, flipkart.com, PhonePe and other sites; and mobile commerce applications.
Read More - Current Price
- $80.60
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 26 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $78.99 (2.0% Downside)
#3 - Costco (NASDAQ:COST)
Because it’s a warehouse club, Costco Wholesale Corporation (NASDAQ: COST) may not be the first name you consider for back-to-school shopping. But the company has an entire section of its website devoted to back-to-school shopping tips. And it brings to mind that back-to-school shopping means more than notebooks and pencils. It means snacks and other items that may be particularly important for college students.
Still, at over $820 per share and trading at 51x forward earnings, some investors may believe COST stock lacks value. However, Costco recently announced an increase to its membership fee, which is bullish for two reasons.
First, Costco has a historical retention rate of over 90%. And second, the revenue from that membership fee will flow directly to the bottom line. Since earnings growth is the fuel for stock price growth, Costco is one to watch. It’s just another example of the many ways that Costco remains a shareholder-friendly company.
About Costco Wholesale
Costco Wholesale Corporation, together with its subsidiaries, engages in the operation of membership warehouses in the United States, Puerto Rico, Canada, Mexico, Japan, the United Kingdom, Korea, Australia, Taiwan, China, Spain, France, Iceland, New Zealand, and Sweden. The company offers branded and private-label products in a range of merchandise categories.
Read More - Current Price
- $907.87
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 19 Buy Ratings, 8 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $844.52 (7.0% Downside)
#4 - TJX Companies (NYSE:TJX)
Anecdotal evidence isn’t the best reason to own a stock, but it’s hard to deny the brand loyalty that consumers have with TJX Companies Inc. (NYSE: TJX). The company is the parent of many brands, most notably TJMaxx, a favorite of Millennial and Gen-Z consumers. The store is known for its treasure hunt appeal.
The company continues to record revenue and earnings that are higher on a year-over-year basis. That’s impressive because this was expected to be a year of tougher comparisons, even for a beloved company like TJX.
The question that investors should be asking is: If this is how the company is performing with interest rates still around 5%, how will it do when the Federal Reserve cuts rates?
Analysts currently have a consensus price target of around $112 which corresponds to the current stock price. However, in July 2024, Costco has received two price target increases which suggests that TJX could have at least 10% upside.
About TJX Companies
The TJX Companies, Inc, together with its subsidiaries, operates as an off-price apparel and home fashions retailer in the United States, Canada, Europe, and Australia. It operates through four segments: Marmaxx, HomeGoods, TJX Canada, and TJX International. The company sells family apparel, including footwear and accessories; home fashions, such as home basics, furniture, rugs, lighting products, giftware, soft home products, decorative accessories, tabletop, and cookware, as well as expanded pet, and gourmet food departments; jewelry and accessories; and other merchandise.
Read More - Current Price
- $119.60
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 13 Buy Ratings, 3 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $126.76 (6.0% Upside)
#5 - Target (NYSE:TGT)
Target Corp. (NYSE: TGT) has already been one of the comeback stories of 2024. For reasons that have been discussed extensively, TGT stock was punished in 2023. But just when it looked like the company was back, it missed on the top and bottom lines in the first quarter. The more distressing point to investors is that this made it five straight quarters of top line misses.
However, analysts are guiding to a 20% upside for TGT stock. For that to happen, it will need some help with back-to-school sales. Investors will get their first idea of what to expect from Target when it reports earnings on August 21.
Analysts are forecasting an ambitious 22% year-over-year jump in earnings when Target reports. TGT stock is already holding a level of support around $145. If the company delivers on expectations, analysts will be raising their price targets and the moving average for TGT stock is likely to move higher.
About Target
Target Corporation operates as a general merchandise retailer in the United States. The company offers apparel for women, men, boys, girls, toddlers, and infants and newborns, as well as jewelry, accessories, and shoes; and beauty and personal care, baby gear, cleaning, paper products, and pet supplies.
Read More - Current Price
- $152.92
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 19 Buy Ratings, 8 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $179.68 (17.5% Upside)
#6 - DICK’S Sporting Goods (NYSE:DKS)
The stocks that have been on this list so far are stores that cover a broad range of back-to-school shopping needs. DICK’s Sporting Goods Inc. (NYSE: DKS) is definitely a niche play, but one that complements back-to-school retail shopping habits.
In recent years, DICK’s has accelerated its digital strategy making it a true player in the omnichannel space. In the company’s most recent investor presentation, it didn’t specifically itemize digital sales but did note that over 65% of its sales came from omnichannel athletes (athletes is the company’s name for customers).
Because practices for fall sports are already underway, the company may have some numbers to provide investors with when it delivers earnings on August 27. But will that be enough to move the stock past a level of resistance between $225 and $230 it has hit multiple times in 2024?
A lot will depend on analyst opinions. As of this writing, analysts have a consensus Moderate Buy rating on the stock with a $237 price target.
About DICK'S Sporting Goods
DICK'S Sporting Goods, Inc, together with its subsidiaries, operates as an omni-channel sporting goods retailer primarily in the United States. The company provides hardlines, includes sporting goods equipment, fitness equipment, golf equipment, and fishing gear products; apparel; and footwear and accessories.
Read More - Current Price
- $212.33
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 12 Buy Ratings, 9 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $244.62 (15.2% Upside)
#7 - Dollar General (NYSE:DG)
The last stock on this list is Dollar General Corp. (NYSE: DG). As a discount-store option, it may surprise you to know that DG stock is down 13% in 2024 and over 30% in the last 12 months. After all, consumers typically turn to discount chains when they’re feeling pinched.
However, the issue isn’t revenue but earnings, which are down to 2019 levels. Plus, although the company reiterated its full-year guidance, it did note that it was still experiencing pressure from retail shrink than expected.
However, some of the earnings drop comes after the company has made significant investments in opening new stores and remodeling existing ones. This includes the company’s Popshelf store-in-store concept that better positions the company with a competitor such as Five Below Inc. (NASDAQ: FIVE).
Analysts have a consensus price target of approximately $145 for DG stock. However, on July 15, Argus issued a $170 price target. That was lower than its prior $175, but it’s still 20% above the consensus.
About Dollar General
Dollar General Corporation, a discount retailer, provides various merchandise products in the southern, southwestern, midwestern, and eastern United States. It offers consumable products, including paper and cleaning products, such as paper towels, bath tissues, paper dinnerware, trash and storage bags, disinfectants, and laundry products; packaged food comprising cereals, pasta, canned soups, fruits and vegetables, condiments, spices, sugar, and flour; and perishables that include milk, eggs, bread, refrigerated and frozen food, beer, and wine.
Read More - Current Price
- $85.75
- Consensus Rating
- Hold
- Ratings Breakdown
- 6 Buy Ratings, 15 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $113.95 (32.9% Upside)
The back-to-school season is a significant event on the retail calendar. And as parents load up on backpacks, notebooks, pencils, and more, investors can make a tidy profit by loading up on stocks of the companies that sell these products.
However, if you're thinking about investing in retail stocks, it's important to consider that this isn't going to be a rising tide that lifts all boats. Consumers are still cutting back, particularly on non-essential purchases. Many retailers, specifically specialty retailers, fit into that category.
But back-to-school shopping, while not something consumers do every day, is something that can't be ignored. According to Parents magazine, parents who earn more than $50,000 don't plan to cut back on back-to-school shopping. However, a recent NerdWallet study reminds investors that 20% of parents are planning to use “buy now, pay later" programs for their back-to-school purchases.
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